~ Investment Strategy

Sitting on Profits of 2.6%

It is tempting to take this profit and do nothing for the rest of the month, because it will give me a short-term psychological hit. But it would be completely the wrong thing to do. If I took profits now, I would still have to put on some new trades tomorrow. Those trades would be worse than the ones I am in now, because the ones I am in have moved away from their stops and the move is confirmation of the ongoing trend.

Also, thinking probabilistically, a trading style that took profits for the month as soon as a reasonable profit target had been hit would make fewer trades than one that traded continuously. An aspect of trading is that any one trade ought to have a positive expected return; the more you trade, the more the probability distribution should work for you, bringing the average return per trade towards the expected return. Thus it is only rational to take profits early if you do not think that your trading style has a positive expectation.

Finally, doing nothing for the rest of the month would have a pernicious psychological effect. I would be bored and frustrated. Keeping oneself engaged with the markets is perhaps the most important aspect of discretionary trading.